Unfair but balanced commentary on tax and budget policy, contemporary U.S. politics and culture, and whatever else happens to come up

Thursday, August 02, 2012

Sillier and sillier

Romney's Policy Director Lanhee Chen complains that the Tax Policy Center report exposing the regressivity of his tax plan "ignor[es] the reforms that would make America's corporations more
competitive by moving from the highest corporate tax rate in the
industrialized world to one that is comparable to our trading partners."

That is just silly. Suppose we agree that it is good policy to enact corporate tax reform that consisted of lowering the corporate rate and broadening the base. The argument for this is NOT that it would boost short-term economic growth. Indeed, if anything it would have the opposite short-term effect. The problem is that lowering the rate, even if good policy, consists in large part at enactment of a one-time windfall to old capital. After all, the earnings that companies reap this year are generally the fruit of past year's investment decisions - often with up-front deductions at the higher rates applying in past years. Meanwhile, the corporate tax preferences that reform would eliminate are generally targeted to new investment.

Another point: if you lower the corporate rate and broaden the base, causing the effective or average tax rate on corporations to be the same (as is implied by revenue neutrality), you don't necessarily attract new capital that would result in more jobs. (Even if you did, the process would be slow. These things take time.) One of the main things you ARE accomplishing by doing this is that you are increasing companies' willingness to report profits as arising in the U.S., rather than abroad. This may reduce the overall revenue loss, but it isn't about jobs.

Anyway, not to dispute that the corporate tax reform that Romney (as well as Obama) envisions might be a good idea. But to claim that it would have any significant effect on the TPC distributional findings, or create significant jobs in the short run, is ludicrous nonsense.

About Me

I am the Wayne Perry Professor of Taxation at New York University Law School. My research mainly emphasizes tax policy, government transfers, budgetary measures, social insurance, and entitlements reform. My most recent books are (1) Decoding the U.S. Corporate Tax (2009) and (2) Taxes, Spending, and the U.S. Government's March Toward Bankruptcy (2006). My other books include Do Deficits Matter? (1997), When Rules Change: An Economic and Political Analysis of Transition Relief and Retroactivity (2000), Making Sense of Social Security Reform (2000), Who Should Pay for Medicare? (2004), Taxes, Spending, and the U.S. Government's March Towards Bankruptcy (2006), Decoding the U.S. Corporate Tax (2009), and Fixing the U.S. International Tax Rules (forthcoming). I am also the author of a novel, Getting It. I am married with two children (boys aged 24 and 21) as well as three cats. For my wife Pat's quilting blog, see Patwig’s Blog.